Tag: durable goods

The Census Bureau said that new durable goods orders declined 1.4 percent in February, falling for the fifth time in the past seven months. Much of the decrease in February stemmed from reductions in the demand for transportation equipment, with new orders in that sector down 3.5 percent in February. This included a reduction in sales for motor vehicles and parts (down 0.5 percent for the month) and fewer nondefense and defense aircraft orders (down 8.9 percent and 33.1 percent, respectively). Note that aircraft orders can be quite volatile from month to month, as nondefense aircraft orders had increased 122.2 percent in January. Therefore, we often look at this data by stripping out the transportation equipment sector, and when you do so, durable goods orders decreased by 0.4 percent – still a soft figure. This mirrors other data showing a number of headwinds dampening demand and output in the early months of 2015. (continue reading…)

The Census Bureau said that new factory orders fell 3.4 percent in December, extending the 1.7 percent decrease observed in November. It was the fifth straight monthly decline. This disappointing report was foreshadowed by the preliminary durable goods release, which stated that sales had declined in four of the past five months. As such, these data show that manufacturing activity ended 2014 on a weak note, with sluggish global growth dampening demand in the United States. To illustrate the slowness of recent data, manufactured goods orders averaged $498.81 billion per month in 2014 as a whole, but December’s level was just $471.45 billion. On a more encouraging note, the average for new factory orders in 2014 was 2.8 percent higher than the $485.4 billion monthly average seen in 2013. (continue reading…)

Despite these solid figures, output measures for the sector have been more volatile, up just 1.6 percent in the soft first quarter and then rebounding with a 7.1 percent increase in the second quarter. In these latest third quarter numbers, manufacturing output rose a solid 4.1 percent, helping to push unit labor costs down 0.7 percent. Lower unit labor costs help to make the sector more competitive globally. Indeed, unit labor costs for the manufacturing sector have fallen 5.4 percent since the end of the Great Recession, with even steeper declines in the manufacturing sector. (continue reading…)

Excluding transportation, new factory orders declined 0.8 percent, suggesting softness in the broader market. Durable goods orders excluding transportation fell 0.7 percent, with nondurable goods sales off 0.9 percent. Despite the decline in July, demand has largely been higher since January’s winter-related decreases, and new manufacturing orders excluding transportation have risen 2.7 percent over the past six months. As such, hopefully, the July numbers are just a pause in an otherwise positive trend year-to-date.

Looking specifically at new durable goods orders in July, the data were mostly lower. This included electrical equipment and appliances (down 4.8 percent), computers and electronic products (down 1.7 percent), furniture and related products (down 1.2 percent), machinery (down 1.2 percent) and primary metals (down 0.3 percent). Outside of transportation, the only other major sector with higher sales in July was fabricated metal products, up 0.1 percent.

Manufacturing production increased 0.1 percent in June, its slowest pace since January’s weather-induced decline. In general, manufacturers continue to expand upon the softness earlier in the year, with year-over-year growth of 3.5 percent in June, up from 1.5 percent in January. However, the year-over-year rate was slightly lower than the 3.7 percent pace experienced the month before. Similar trends were seen with manufacturing capacity utilization, which declined from 77.2 percent in May to 77.1 percent in June. While lower for the month, it still represented progress from the 75.5 percent rate seen in January.

On a year-over-year basis, durable goods production has risen by a healthy 5.5 percent in June, an increase from 5.4 percent observed in May. Nondurable goods activity was up a less robust 1.5 percent over the past 12 months, down from 2.1 percent the month before. The largest gains in production over the past year were seen in the following sectors: plastics and rubber products (up 7.5 percent), motor vehicles and parts (up 6.8 percent), fabricated metal products (up 6.2 percent), machinery (up 6.1 percent), furniture and related products (up 5.9 percent), primary metals (up 5.9 percent) and nonmetallic mineral products (up 5.8 percent).

Meanwhile, overall industrial production rose 0.2 percent in June, slower than the 0.5 percent increase in May. On a year-over-year basis, industrial production has grown 4.3 percent. Mining accounted for the largest jump in output, up 0.8 percent for the month and 9.7 percent year-over-year. Utility output declined for the fifth straight month, down 0.3 percent in June but up 1.8 percent year-over-year. Total capacity utilization was unchanged at 79.1 percent.

In conclusion, manufacturers continued to expand output, with the sector recovering from softness earlier in the year. Yet, growth slowed in June, and we would like to see improvements coming from a broader base of the manufacturing sector. In general, manufacturers are cautiously upbeat about production in the second half of this year, but for those projections to materialize, we need to see stronger growth in the U.S. and globally. For that reason, policymakers should focus on those initiatives which will keep the economy growing moving forward.

Chad Moutray is the chief economist, National Association of Manufacturers.

The U.S. economy contracted for the first time in three years in the first quarter of 2014. Real GDP fell 1.0 percent in the quarter, a fairly substantial revision from the earlier estimate of a gain of 0.1 percent. Much of the storyline behind these figures was the same, with consumer spending on services being the only real bright spot. Purchases of durable and nondurable goods were positive, but weather-related challenges dampened both. Weaknesses in business spending for equipment and structures, residential housing investments and reduced goods exports were all major drags on growth.

The bulk of the downward revision stemmed from lower inventory replenishment. Ironically, that could lead to more inventory spending in the second quarter with stocks running lower. In addition, other figures also point to a rebound in activity during the spring months, with my forecast for second-quarter real GDP at 3.8 percent. Still, U.S. and global growth have started off 2014 much slower than anticipated, particularly when averaging together the first and second quarters. For the year, we now expect growth of 2.3 percent, which would indicate a slight downgrade from the more optimistic outlook predicted coming out of the strong momentum during the second half of last year.

The spring rebound in the manufacturing sector can be seen in other data released last week as well, albeit with some mixed news overall. For instance, new durable goods orders rose 0.8 percent in April, building on strong growth in February and March. Nonetheless, excluding transportation, new durable goods orders were up less robustly, suggesting some broader weaknesses beyond the headline monthly figure. Moreover, new durable goods shipments declined 0.2 percent in April, even as the longer-term trend remains positive.

At the same time, regional Federal Reserve Bank surveys show a similar recovery for manufacturers, but also some easing in the latest data. Manufacturing activity in the Dallas Federal Reserve district has now expanded for 12 straight months, but the pace of growth for new orders, production, capacity and employment eased in May. The Richmond Federal Reserve’s report also observed a deceleration in sales growth; however, it also noted a pickup in shipments and hiring. Perceptions about the current business outlook were unchanged, even as conditions had improved from winter weather earlier in the year. Looking ahead six months, respondents in both Dallas and Richmond remain mostly upbeat, even if this enthusiasm was a bit weaker in May.

The two surveys also indicated a rise in pricing pressure expectations, consistent with other reports showing some higher raw material costs. Indeed, prices for personal consumption expenditures have risen 1.6 percent year-over-year, up from 0.9 percent in February and 1.1 percent in March. April’s increase stemmed largely from higher energy prices, with food costs also up modestly (but at a slower pace than the month before).

Speaking of consumer spending, Americans decreased their purchases by 0.1 percent in April following two months of healthy increases. Year-to-date, personal spending has grown 1.6 percent, with purchases up 4.3 percent over the past 12 months. Meanwhile, the two consumer confidence measures—one from the Conference Board and the other from the University of Michigan and Thomson Reuters—moved in opposite directions in May, even as they continue to reflect rising sentiment over the past few months, particularly since the government shutdown.

This week, the focus will be on jobs and trade. We will get new employment numbers for May on Friday, which we hope will build on April’s strong figures. Manufacturers have averaged just more than 13,000 workers per month since August, and the expectation is for job growth in the sector around 10,000 or so in May. The consensus forecast is for 215,000 additional nonfarm payroll workers for the month, suggesting decent hiring. On the international front, we will learn if manufactured goods exports can improve from the rather disappointing rates so far in 2014, up just 1.1 percent in the first quarter of this year relative to the same three months in 2013. Other highlights include new data on construction, factory orders, productivity and Purchasing Managers’ Index figures from the Institute for Supply Management.

Chad Moutray is the chief economist, National Association of Manufacturers.

Capacity utilization also eased a bit in the manufacturing sector, down from 76.9 percent in March to 76.4 percent. This brought the utilization rate back to where it was in December. On a year-over-year basis, manufacturing capacity has grown 2.1 percent.

The underlying data by sector were mixed but lower, with 12 of the 19 major sectors experiencing reduced output for the month. Durable goods and nondurable good production both declined, down 0.3 percent and 0.4 percent, respectively. The largest monthly declines were seen in the machinery (down 1.6 percent), petroleum and coal products (down 1.6 percent), primary metals (down 1.6 percent), furniture and related products (down 1.2 percent), and plastics and rubber products (down 1.0 percent) sectors.

Meanwhile, overall industrial production declined 0.6 percent in April, following 0.9 percent and 1.1 percent gains in February and March. Mining activity (up 1.4 percent) increased for the second straight month, but this was offset by declines in manufacturing (see above) and utilities (down 5.3 percent). Industrial production rose 3.5 percent between April 2013 and April 2014, reflecting modest gains, but this was down from a 3.9 percent pace the month before. Capacity utilization was lower, as well, down from 79.3 percent to 78.6 percent.

In conclusion, the U.S. economy has started 2014 at a much slower pace than anticipated, particularly given the strong momentum seen at the end of 2013. While manufacturers have begun to rebound from winter-related softness earlier in the year, it remains clear that output growth has not fully recovered to the pace seen just a few months ago.

We remain hopeful for the demand and production to accelerate in the coming months, but April’s decline in activity shows just how fragile our recovery has been. Manufacturers are cautiously optimistic about increased activity this year, but there is also nervousness that such progress will be fleeting, much as it has in previous years. We can’t afford to continue the “one step forward, two steps back” trend – it is costing us the ability to truly compete in the global economy – policymakers must combat that trend with pro-growth measures that allow manufacturers to make sustained investments and grow their businesses.

Chad Moutray is the chief economist, National Association of Manufacturers.